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Benchmarking the Procurement Function

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- Why benchmark - and why can it be useful?
- What can we benchmark against, and who can help with the process?
- Benchmarking processes and techniques
- Pros and cons of different benchmarking options
- A suggested model for benchmarking the procurement function
- Developing improvement plans

Publicado en: Empresariales, Tecnología
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Benchmarking the Procurement Function

  1. 1. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Peter Smith May 21st 2014
  2. 2. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Agenda 1. Introduction 2. Why and how we might do this? 3. What should we assess? 4. Acting on the outcomes 5. Wrap up 6. Real World Sourcing Scholarship
  3. 3. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Part 1 - Introduction The Real World Sourcing Series 2014 is a series of sessions covering hot topics for procurement professionals. The Real World Sourcing Series is promoted and supported by Tejari, and developed by Peter Smith (Spend Matters) and Guy Allen (Real World Sourcing Ltd.) Peter Smith started his procurement career with Mars Confectionery, then was CPO for Dun & Bradstreet Europe, the Department of Social Security and the NatWest Group. He is now a consultant, author, non-executive director and editor of the Spend Matters website. Peter was President of CIPS in 2002/3, is an senior adviser to the UK’s National Audit Office and co-wrote “Buying Professional Services”, published by the Economist Books in 2010.
  4. 4. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Benchmark (noun) “A standard or point of reference against which things may be compared”. Benchmarking (verb) “To evaluate (something) by comparison with a standard”.
  5. 5. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function When might we want to benchmark the function? • Coming in as a new CPO • A CPO concerned about performance or recognising need for change • After a merger / acquisition • As a consultant / contractor / adviser • Asked to do so as an internal executive • To fit with a wider change programme • When we want to make a name for ourselves!
  6. 6. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function • We must bear in mind that our procurement function and performance needs to be appropriate to the needs, objectives and strategy of the organisation • Not everyone needs to be World-Class in everything they do! • Different market sectors have different requirements – consider a large food manufacturer, a global professional services firm, a tech manufacturer, a government department.... • Size, market, location, etc – all influence what is appropriate and what you need to be benchmarking against
  7. 7. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function What do we benchmark ourselves against? We have a number of options - we can use: • Our own targets, standards or aspirations • Our competitors activities, processes, performance • Other firms – peers or best practice exemplars in different industries • An external standard (which may be derived from multiple sources, including other organisations)
  8. 8. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Who will carry out the benchmarking? There are various options – all have pros and cons: • The CPO him/herself • Member(s) of staff – procurement and / or others within the organisation • External independent consultants – ranging from the expert “one (wo)man band” to a huge firm • An academic, professional or institutional body (CIPS, CAPS, IIAPS etc)
  9. 9. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Who will carry out the benchmarking? There are a range of institutional and / or regular external options – for example: • CIPS / Institute of Supply Management / CAPS • International Institute for Advanced Purchasing and Supply • Consulting firms with broad based studies – e.g. A.T. Kearney’s “Assessment of Excellence in Procurement” Study • Consulting firms with more specific focus e.g. State of Flux / Future Purchasing work on SRM, Category Management
  10. 10. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function What are we going to analyse? • Results and outputs? • Inputs? • Processes? • Strategies? Tools and technology? • Capability? • Stakeholder opinion (staff, users, suppliers, top team)? • Are we doing this for the whole function or just focusing on a particular aspect of the procurement function / activities?
  11. 11. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function What process will be used to carry out the benchmarking? How do we – or the third party – carry out the assessment? • Consider the results / outcomes produced by the organisation • Metrics / indicators – basically numbers • Interviews – Socratic discourse • Questionnaires • Analysis (lots of reading and perhaps discussion) • A combination of all / some of the above
  12. 12. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function How do we choose the right benchmarking approach? Each option has pros and cons. We need to consider: • The feasibility – there is no point announcing we will assess ourselves against “the best 20 firms in the world” if we have no idea who they are or how to persuade them to co-operate • The time it will take to carry out the assessment • The cost of the work – internal and external • The credibility of the option chosen (benchmarking against the firm down the road may not carry the weight internally of a global AT Kearney study..) • The likely benefit and usefulness of the results
  13. 13. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Consider an external survey based programme such as AT Kearney or CIPS. Pros – credibility with colleagues and other organisations; good data sources (other participants); intellectual / academic underpinning; thoughtful content, often options to engage with community Cons – cost; resource (may require internal commitment to data gathering etc.); appropriateness issues; potential for “so what” results; conflicts of interest (consulting firms); standard so perhaps impersonal approach
  14. 14. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Table Discussion: what are the pros and cons of the following benchmarking options: • An internal team (CPO, graduate trainee and a user from IT) to analyse key processes against a set of standards we’ve developed internally based on informal benchmarks with other firms • A benchmark study (50 questions) of procurement technology use, compared against other global firms, run by a major software company • Bring in Peter Smith / Guy Allen to do an interview and analysis-based 10 day review using a version of the UK government procurement benchmarking model
  15. 15. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function
  16. 16. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function
  17. 17. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function IIAPS “The tool provides for assessments and benchmarks against world-class standards for these 184 attributes. This is broken down by: business buy-in and functional role; stakeholder management; the major organisational activities and tasks within the strategic sourcing process; organisational structure; and systems & processes”. (Self-Assessment followed by external input)
  18. 18. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function 3 Capability Areas 9 Key Indicators World Class Leadership  Leadership  Strategy and Business Alignment  Stakeholder and Supplier Confidence World Class Skills Development and Deployment  People and Skills  Intelligent Client World Class Process and Systems  Governance and Organisation  Sourcing and Collaboration  Process and Tools  Information and Performance Management OGC Procurement Capability Review Model
  19. 19. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function World class leadership 1 Visibility and impact of leadership Development area 2 Business and Policy Alignment Urgent development area 3 Stakeholder and Supplier Confidence Development Area World class people 4 Resourcing Development Area 5 Intelligent Client capability Urgent Development Area World class systems 6 Governance and organisation Serious concerns 7 Sourcing and collaboration Well placed 8 Use of tools and techniques Well placed 9 Knowledge and Performance Management Development Area
  20. 20. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function http://www.iiaps.org/bench_pscm.html
  21. 21. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function CAPS Metrics http://www.capsresearch.org/Research/Benchmarking/Benchmarking.aspx 20 metrics including; • Supply Management Employees as a % of company employees • Supply Management operating expense as a % of sales revenue • Supply Management spend per Supply Management employee • % of total spend through p-cards • Training costs per Supply Management employee • Average cycle time from requisition approval to PO placement • % of active suppliers accounting for 80% of spend
  22. 22. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Specialist firms, topic-specific benchmarking e.g. State of Flux
  23. 23. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function INTERNAL EXTERNAL PEER Quantitative Collectkey metrics – track over time Metricsbased survey (ISM, ATK etc.) Privatepeer benchmarking Qualitative Stakeholderinput; interviews, questionnaires Consultantrun - conductinterviews etc. Best practice clubs, discussionsetc. Benchmarking methods – a summary And – do we look at whole function or a subset (a third dimension)?
  24. 24. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function • Here is a model of procurement that I have used in benchmarking and procurement improvement programmes over the years. • It is by no means the only one and I am not claiming it is the ‘best’ model! • But it gives a quite complete picture of the different elements you might want to benchmark.
  25. 25. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Category / Sourcing Management Transactional Management – P2P Contract & Supplier Management RESULTS / OUTCOMES • Value / savings • Stakeholder satisfaction • Efficiency • Risk Management TECHNOLOGY & TOOLS PEOPLE GOVERNANCE STRATEGY & LEADERSHIP
  26. 26. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Category / Sourcing Management Transactional Management - Purchase to Pay Contract & Supplier Management RESULTS / OUTCOMES • Value / savings • Stakeholder satisfaction • Efficiency • Risk Management TECHNOLOGY & TOOLS PEOPLE GOVERNANCE STRATEGY & LEADERSHIP
  27. 27. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function What do we benchmark? • The next series of slides give some ideas for the sort of factors you might look at under different assessment headings • They could apply whether the assessment is internal or externally run and whether or not other organisations are involved • They are not intended to be comprehensive – merely examples • Under “processes” we have included only contract management (in the interests of time) as an example • You might look similarly at category management, sourcing, supplier management, and P2P in a similar manner at a process level
  28. 28. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Strategy • Understanding at Board level of procurement role & contribution to organisation (operational, control and strategic benefits) • Head of function either at Board level; or one level below with a Board member taking clear ownership for procurement and commercial matters • All spend is addressed by procurement function • HoF considered part of senior ‘peer group’ with other leaders • Clear link between overall organisational strategy and Procurement strategy • Organisation has a clear process for “make versus buy” decisions covering new requirements
  29. 29. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function People • There is an appropriate number of procurement professionals given the nature of the organisation, current and future resourcing needs are understood and plans are in place to meet needs. • Recruitment is open, fair, professional, seeks excellence and diversity, with agreed job descriptions, role profiles, job evaluation and grading processes in place. • Succession and organisational planning processes in place, with initiation programme and retention strategies. Internal career development and progression is planned. • Training and development programmes in place, including Chartered Institute of Purchasing and Supply (CIPS) or similar. • Skills assessment processes used, with training needs also linked to personal objectives (which link to overall procurement objectives), and training for more senior staff goes beyond MCIPS – e.g. MBA, tailored programmes, advanced skills. • Regular structured appraisal process for staff with clear objectives, training needs etc identified - where necessary, performance improvement is sought from individuals and (at the extreme) disciplinary actions taken as appropriate. •
  30. 30. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Tools and Technology • Small number of standard procurement processes, clearly defined, non-bureaucratic and appropriate to risk involved • Systems (technology) strategy and operations designed to support overall strategy and processes. Options for use of eProcurement, eSourcing , Supplier Information Management, spend analytics, etc. are considered, understood and implemented appropriately • Low value ad hoc purchases handled through low cost processes and low value regular purchases automated (online catalogues, P-Card) for easy but controlled access by users • High value one-off purchases controlled through a formal, systemised requisition / Purchase Order process • Accounts Payable (AP) uses effective processes, is highly automated, and provides fast, accurate management information •
  31. 31. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Governance • Procurement activities take place at the optimum level within the total organisation • Clearly defined roles, responsibilities and reporting lines • Procurement policy covers all the key issues, supports the strategy, is well communicated and easily available throughout the organisation (intranet, summary aide-memoirs etc.) • Staff are empowered and trusted, but rules are made clear. Random checks are carried out and transgressions punished • Controls are appropriate to the risk involved
  32. 32. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Key processes (e.g. Contract Management) • Contract administration is professionally handled, including access to contracts (physical and / or electronic) – with clarity between role of procurement / other stakeholders • Emphasis placed on continuity through whole end to end contract process (e.g. contract manager involved in pre-contract process.) • Major contracts are managed with measurement and review through the entire contract period • Contract management processes in place for all appropriate suppliers, including; • measurement and reporting; • feedback / continuous improvement; • change management; and • risk management
  33. 33. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Outcomes / Performance • Procurement has defined processes or programme for stakeholder engagement, including identification of key people, structured meetings • Stakeholders perceive procurement as important allies, professional and supportive of their own priorities • Suppliers perceive the organisation as a preferred customer, and procurement as a professional, competent function • Good and regular communication with suppliers, using tools such as website, supplier events, newsletters etc. • Delivery of benefits – savings, value, risk, ...etc. • Regular measurement/ appraisal of procurement performance with review and feedback upwards through the organisation
  34. 34. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function The benchmarking is pointless if you don’t DO something So turning the assessment into an action plan is critical • Strike while the iron is hot • Use the interest and enthusiasm generated by the assessment • Prioritise the key areas of opportunity • Get buy-in – including upwards, key stakeholders • Run it as a proper programme / project with the appropriate disciplines Improvement Plans – Acting on the Outcomes
  35. 35. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Key Take-aways • There is no single right or best way to benchmark procurement. • Think about the alternatives – what to benchmark, who or what you're going to benchmark against, the methodology you might use, and who will carry out the assessment. • Make sure the benchmarking is actionable and appropriate. • Decide whether you are looking at the whole range of factors / activities / performance or focusing on a sub-set. • There are some strong indicators of procurement success – decide which are the most relevant for your organisation and look to assess against those.
  36. 36. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function Real World Sourcing Scholarship • 10,000AED towards any procurement based training • You will receive an email with your Tejari Education Network login details • Complete the online certification programme • Answer as many questions right as possible • The top 10 scorers will be invited to the Awards dinner • The winner will be announced at the dinner!
  37. 37. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function What three measures would you benchmark, in order to assess the strength / performance of a procurement function? What would give you the most insight into how strong the function is? You have just three questions / data points ... Ten minutes discussion then feedback
  38. 38. ©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe Benchmarking the Procurement Function THANK YOU! Please feel free to contact me on psmith@spendmatters.com

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